Rabobank brings coffee industry players together
Cooperation essential to secure the future of coffee
Today’s coffee industry is faced with major challenges. To tackle these challenges it is essential that all market players join forces to work together rather than against each other. Rabobank is now taking the lead in order to drive this cooperation forward.
The amount of coffee consumed worldwide increases every day and demand grows with each passing year. Trendy coffee shops are sprouting like mushrooms. Coffee has become a cultural phenomenon. Trends are furiously outpacing each other. After the popularity of the cappuccino, latte macchiato and espresso in a variety of flavours and coffee bean blends, the good old ordinary cup of filtered coffee is once again hip. As a result, the demand for coffee has not only increased, it has also changed. The new coffee drinkers want quality and diversity. And they are critical of where their coffee is sourced.
Lagging production, ageing farmers
The challenge that is facing the coffee industry is how to meet the increased demand while dealing with a range of problems. Coffee production is lagging due to for example failed harvests caused by climate change. This calls for new, sustainable production methods. Meanwhile, many small coffee farmers are struggling to survive on low incomes. Their negotiating position is weak and they lack the knowledge to improve efficiency in order to increase their crop yield. In addition, growing coffee is further complicated by the fact that a new generation of coffee farmers is needed to replace the retiring generation.
Talking is the first step towards a solution
To address all of these challenges, the different players in the coffee supply chain need to join forces. Since Rabobank is a ‘coffee bank’ par excellence – we play a role in every part of the coffee supply chain and finance a wide range of trade flows – we launched an initiative to facilitate cooperation. We organised a roundtable discussion on the future of coffee during a coffee event* in Basel in October 2015. Participants included representatives of coffee farmer cooperatives (e.g. FNC Colombia and UCDA), coffee traders, coffee roasters and retailers (e.g. Nestlé, Illy and Starbucks) and NGOs involved in coffee certification (e.g. UTZ Certified and 4C Association). Thanks to our extensive network in the coffee world, we were able to bring parties together in Basel who had never met on this level before. This is a necessary step in paving the way to structural solutions for sustainable coffee production. After all, each link in the coffee supply chain is a component of the solution.
The future of coffee
The roundtable discussion was an opportunity for the participants to get together and examine the key issues (see inset). Rabobank conducts extensive research into global coffee flows and production and consumption data. Our coffee industry statistics and figures proved an important source of information during the roundtable discussion and provided plenty of opportunity for dialogue. The meeting was a wake-up call and has prompted the participants to stay in touch and continue talking about specific problems. We are currently in the process of formulating a phased plan with concrete action points to secure the industry’s future. In October 2016, parties will meet again during the coffee conference in Switzerland where Rabobank will continue to play a leading role in organising cooperation in the industry.
* annual gala dinner of the Swiss Coffee Trading Association (SCTA)
The 7 key challenges facing the coffee sector
1. In the next 10 years, coffee demand is expected to rise by 45 million bags (of 60 kg each). Where are we going to produce those extra 2.7 billion kilos of coffee beans?
2. The average coffee farmer is 58 years old. How do we ensure that coffee farming remains attractive to a new generation of farmers? A broader question: How can coffee families achieve stability in their incomes – also through other sources of income?
3. Should we invest in spreading coffee production? At the moment, coffee production is highly concentrated. Given that both Vietnam and Brazil are low-cost producers, the overwhelming majority of coffee is produced by these two countries, resulting in high vulnerability. However, it is predicted that climate change will lead to a shift in production areas.
4. Consumers are becoming increasingly critical when it comes to the origins of products. They want to know where the coffee has been sourced and whether it has been produced in a responsible, environmentally friendly and sustainable way. Companies must be aware of this to ensure they keep their licence to operate, even if this may lead to lower margins. Education on this topic may be necessary to raise awareness among coffee growers.
5. Consumers need to be made more aware of the high costs involved in sustainable coffee production to increase their willingness to pay more for their cup of coffee. This particularly applies to critical and conscious consumers. Not everyone is able or willing to dig deeper in their pockets for coffee. There are also consumers who enjoy cheaper coffee and are not bothered with quality or origin. Therefore, the coffee industry needs to develop customised solutions for different consumer segments.
6. We must find ways to help farmers develop better, more efficient farming methods in order to increase their coffee production and yield. This calls for knowledge transfer. Who will be responsible for this knowledge transfer? Perhaps even more importantly: who is going to pay for it?
7. Most of the challenges that confront the coffee sector relate to the farmers and the environments in which they work and live. These are not easy problems to solve. Government support and cooperation at national level is needed in order to make fundamental changes. This is why it is essential to create a platform where not only businesses, but also governments can become involved in the discussion on the future of coffee.